Despite recent efforts of many states, including Washington, Rhode Island and Delaware, to launch state-run automated retirement savings programs, there’s a federal snag that is hampering their efforts: the Customer Identification Program (CIP), which was intended to prevent financial crime.

Created by the USA PATRIOT Act of 2001, which Congress passed six weeks after the 9/11 terrorist attacks, the CIP was designed to prevent money laundering that could finance terrorism. The CIP Rule was issued by the Department of the Treasury and multiple agencies to banks, savings associations, credit unions and certain non-federally-regulated banks in 2003. CIPs confirm that a potential account holder exists and is the person they claim to be.

However, a new report, jointly produced by the Pew Charitable Trusts and the Bipartisan Policy Center, found that CIP rules currently block states from enrolling more than 2 million Americans into auto-IRA programs. Auto-IRAs are not exempt from CIP rules, according to the Customer Identification Program Rules Hamper Effectiveness of Automatic IRA Programs report.

As a result, program administrators for state auto-IRAs must run a CIP check on employees, and those who pass are automatically enrolled for payroll deduction contributions into their own IRA. “Program data shows that 29-46% of potential state program participants fail the CIP check and are not automatically enrolled …,” according to the report. “CIP failures are due solely to the inability to verify an address—one of the four pieces of data required, along with name, date of birth, and Social Security Number or Individual Taxpayer Identification Number.”

As of June 30, 2024, there are 20 states that have set up new programs for private sector workers, and 17 of these states are auto-IRA program states, which provide retirement savings for workers who do not have employer-sponsored retirement benefits.
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Nearly 1 million workers in eight states have amassed over 1.7 billion in savings, according to the report. Since 2012, every state except Alabama has either enacted or introduced legislation that would establish state-facilitated retirement savings programs.

“Unfortunately, the CIP is preventing millions more from benefitting from these programs because they are not granted a common exemption for low-risk accounts,” said Kim Olson of the Pew Charitable Trusts and Emerson Sprick of the Bipartisan Policy Center, authors of the report.

“Legislation could add an exemption for employees enrolled in auto-IRAs …,” concludes the report. “Regulators can add an exemption to CIP rules for auto-IRAs.”